RPSM03109024 - Technical Pages:
Protecting pension rights from tax charges: Death benefits: Value
of pre-commencement right to death benefits
The value of 'pre-commencement rights to death benefits'
The value of an individual’s ‘pre-commencement
rights to death benefits’ is the amount of the lump sum death
benefits that would have been payable had the individual died on 5
April 2006 excluding:
- any amount that if paid would have given
HMRC grounds for withdrawing approval of the
scheme/arrangement/contract making the payment,
- the dependants’ pension proportion
amount (if any). This amount is determined by calculating the
maximum amount of lump sum that could be paid from each
arrangement as a
defined benefits lump sum death benefit or an
uncrystallised funds lump sum death benefit when
the first such lump sum death benefit is paid from each
arrangement. Where such lump sums are lower than the maximum lump
sum otherwise payable because some potential lump sum has been or
will be paid instead as
dependants’ pensions the proportion of the
maximum potential lump sum paid or payable as dependants’
pensions must be calculated. This proportion is then applied to the
amount of the lump sum death benefit payable had the individual
died on 5 April 2006. The resulting amount of lump sum is the
dependants’ pension proportion amount.
- the amount of any lump sum death benefit
payable under a policy of life assurance on 5 April 2006 by any
scheme (other than an
occupational pension scheme with at least 20
members on 5 April 2006) where:
- the policy does not pay out a lump sum after 5
April 2006, or
- the terms of the policy are varied significantly
in the period 5 April 2006 to the date of the individual’s
death. Guidance on what is meant by a significant variation to the
policy can be found in The Insurance Policyholder Taxation Manual
at IPTM8145 and IPTM8150. Any exercise of rights conferred by the
policy is treated as a variation.
A variation made in order to comply with the Employment Equality
(Age) Regulations 2006 or the Employment Equality (Age) Regulations
(Northern Ireland) 2006 – or any regulations replacing or
amending them – will be ignored for this purpose.
- the amount of any lump sum death benefit
payable from an occupational pension scheme on 5 April 2006
where:
- the individual was not continuously employed in
the period from 5 April 2006 to the date of their death by either
the same employer as they had been on 5 April 2006 or by a person
connected with that employer (connected persons are defined in s839
ICTA 1988 – see the Capital Gains Manual – CG14580 to
CG14624), or
- the individual was already entitled to benefits
under the occupational pension scheme before their death.
Where a policy held on 5 April 2006 for the purposes of an
occupational pension scheme is surrendered and a new one taken out
the new policy will be treated as a pre 6 April 2006 existing
policy where the reason for the surrender and taking out of the new
policy is either
- to comply with the Employment Equality (Age)
Regulations 2006 or the Employment Equality (Age) Regulations
(Northern Ireland) 2006 – or any regulations replacing or
amending them, or
- as part of a transaction to ensure that the
activities of an occupational pension scheme (as defined by section
1 Pension Schemes Act 1993) comply with either section 255 of the
Pensions Act 2004 or article 232 of the Pensions (Northern Ireland)
Order 2005 and the rights under the old and new policy are not
significantly different
RPSM03109026 gives an example of the valuation of
‘pre-commencement rights to death benefits’.
